DoorDash CEO Tony Xu said the company is changing its pay model to end its previous practice of using tips as part of the minimum payment to its delivery people.
The news comes two years after the food delivery app introduced the model that it said would help more of its delivery people, called Dashers, make more money. It also follows public criticism that the company was using customer tips to help cover the minimum payment rather than as an added bonus for a job well done.
4/ Going forward, we’re changing our model - the new model will ensure that Dashers’ earnings will increase by the exact amount a customer tips on every order. We’ll have specific details in the coming days.— Tony Xu (@t_xu) July 24, 2019
“It’s clear from recent feedback that we didn’t strike the right balance,” Xu tweeted on Tuesday. “We thought we were doing the right thing by making Dashers whole when a customer left no tip. What we missed was that some customers who *did* tip would feel like their tip did not matter.”
Xu said under the new pay model, which will be detailed in the “coming days,” will increase Dasher’s earnings by the exact amount a customer tips.
Currently, DoorDash uses an algorithm that takes into account factors like distance and traffic to determine a payout price for the delivery.
DoorDash contributed $1 per order, and customers’ tips were absorbed into the total pay amount. If a customer didn’t tip enough or at all, DoorDash would cover the remaining balance. DoorDash says that 15% of customers don’t tip.
“We did not launch our current model to pay Dashers less,” Xu tweeted on Tuesday. “In fact, when we moved to it, our average contribution to Dashers stayed the same.”
DoorDash switched to that pay model from a flat-fee model in 2017, saying that data from its tests showed that pay for Dashers increased 24% for deliveries less than $20. The company said that Dashers liked the new model, as they were getting paid more on average.
However, many customers weren’t happy. Unless they tipped in cash, their tips were often gobbled up into the minimum payment, versus being added to Dashers’ total as customers had assumed.
The model is similar to one used by Amazon Flex and briefly by Instacart, which changed its model in February after similar backlash.
Prior to the model, DoorDash offered a smaller payout amount that didn’t account for tips. In that model, any tip was added on top of the payout.
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